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Microsoft returns to the courtroom

The software giant resumes its battle with nine states and the District of Columbia, a contest that could determine a final remedy to Microsoft's antitrust violations.

WASHINGTON--Microsoft returns to court on Monday for what could be the climactic showdown to its nearly 4-year-old antitrust case.

The software giant will pit its ingenuity and resources against the combined forces of nine states and the District of Columbia, as the combatants engage in a contest that could determine a final remedy for Microsoft's antitrust violations.

Monday marks the beginning of potentially eight weeks or more before a federal judge, as testimony resumes for the first time since the main trial's nearly 80 days in court concluded in September 1999.

Though the courtroom theatrics and rapid-fire questioning of former Justice Department lead attorney David Boies will be missing, the testimony is expected to be lively as both sides attempt to impugn the other's credibility.

For example, the litigating states will try to show that Microsoft used a licensing provision from its settlement with the Justice Department and nine other states to raise Windows prices and pilfer PC makers' intellectual property. The litigating states are expected to use this and other evidence to show that a stiffer remedy--one without loopholes favoring Microsoft--is better than the current proposed settlement. From that perspective, the Justice Department in one sense will be on trial, too, as the litigating states argue that the settlement does not meet the requirements of a June 2001 appeals court ruling largely against Microsoft.

"The judgment of the Justice Department is on trial here, but of course not in the broader sense," said Bob Lande, an antitrust professor with University of Baltimore Law School.

For its part, Microsoft plans to offer support for its accusations that rival Oracle largely wrote the remedy proposal the litigating states submitted to the court in December. At one point, Microsoft had planned to call an Oracle executive to testify. The company has argued the Justice Department settlement is adequate and that the states are simply acting at the behest of competitors, which want to use the remedy as a means of restricting Microsoft's ability to compete fairly in the market place.

Both sides laid out the basics of their legal strategy in a March 1 filing with the court.

Waging war over XP
Microsoft's flagship Windows XP operating system is expected to be a major focal point of the remedy proceeding.

The Justice Department settlement places some restrictions on how Microsoft conducts its business and what kind of Windows information is disclosed to software developers. But the litigating states want much more, including restrictions on how Microsoft develops and positions its software. They also want Microsoft to give away for free the code to its Internet Explorer Web browser and sell a stripped-down version of Windows without so-called middleware, such as media streaming and instant messaging technologies.

Part of what they will ask for are restrictions to Windows XP, long a target of some states. While the original case focused largely on the browser market, the states are expected to argue that the Court of Appeals ruling mandates a more forward-looking remedy protecting competition in other so-called middleware markets.

"The critical issue is going to be if the judge is prepared to go to applications that weren't directly implicated before the previous judge," said Rich Gray, a Silicon Valley-based attorney closely following the trial. If the judge believes the case should stick to the technologies covered by the original trial, "then the remedies will be quite narrow."

On the other hand, if the judge is convinced that to "enhance and protect competition," everything must be considered, "then the states have a chance at a far-reaching remedy," Gray added.

The litigating states are expected to attempt to use Windows XP Embedded as an example to shred Microsoft's long-standing argument that removing so-called middleware from its operating system is technically unfeasible. Microsoft's own product literature describes XP Embedded as a "componentized version of the leading desktop operating system." The states are expected to argue XP Embedded's installation, which can be customized for a variety of non-PC devices, is evidence the so-called middleware technically can be removed from Windows without breaking the operating system.

Last month, U.S. District Judge Colleen Kollar-Kotelly ordered Microsoft to reveal to the states the source code--or blueprint--to Windows XP Home, Windows XP Professional and Windows XP Embedded.

In papers filed with the court, Microsoft argued that the states' proposed remedy would force the company to remove Windows from the market place, a point CEO Steve Ballmer reiterated in his deposition for the hearing.

"I actually think we would need to withdraw the Windows product from the marketplace," he said. "That...would be the only way I understand to comply with the proposal as put forward by the non-settling states."

Cast of characters
The remedy hearing will pit two powerful law firms against another. John Warden from New York-based Sullivan Cromwell and Dan Webb with Winston & Strawn of Chicago will represent Microsoft. Brendan Sullivan and Steven Kuney from Williams & Connolly, here, will lead the litigating states' legal team. The states hired Sullivan about a week before the Justice Department settled the antitrust case. Stephen Houck, an important player during the main trial, also will return to assist the states. Houck hadn't been actively involved in the case since leaving the New York attorney general's office in September 1999.

New York is one of the nine settling states. California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah and West Virginia, along with the District of Columbia are continuing with the litigation.

The litigating states plan to call 16 witnesses, the majority of which make up a "Who's Who" list of Microsoft competitors. Peter Ashkin, former Gateway executive and current AOL product strategy president, will testify about how Microsoft's used its Windows licenses with PC makers to force its will. He also will explain why the Justice Department's settlement does not offer enough flexibility in choosing non-Microsoft products.

Former Netscape Communications Chairman Jim Barksdale will offer a retelling of Microsoft's antics during the browser wars and explain why the settlement is inadequate. Microsoft could question him on a portion of his deposition, in which Barksdale indicates that he attempted to contact the Justice Department for the purpose of preventing a settlement.

Gateway executive Anthony Fama also will address licensing issues, past and present, particularly changes since the Justice Department settlement. Red Hat Chief Technology Officer Michael Tiemann will explain how the states' remedy would boost competition in the operating systems market. AOL Vice President John Borthwick will testify about why a middleware-less version of Windows XP is good for competition.

Many witnesses will focus on the middleware threat posed by Windows XP: Liberate CEO Mitchell Kertzman; Richard Green, a Java general manager with Sun Microsystems; Novell CTO Carl Ledbetter; Larry Pearsons, an executive with SBC Operations; RealNetworks VP Dave Richards; and Sun Senior Vice President Jonathan Schwartz. Palm executive Michael Mace and former Intel Vice President Steven McGeady will call for more aggressive disclosure of application programming interfaces (APIs).

Third-party witnesses include Princeton University professor Andrew Appel, University of California professor Carl Shapiro and John Shenefield, senior partner with Morgan, Lewis & Brokius, here.

Microsoft has assembled 29 witnesses to testify. But many Microsoft executives, including Ballmer, Chairman Bill Gates and Senior Vice President Jim Allchin, are only tentatively scheduled to testify.

Other Microsoft witnesses on the list: Linda Averett, Windows Media Division product unit manager; Gayle Brock, an account manager; MSN Senior Vice President David Cole; Richard Fade, who is responsible for PC maker licensing; Chris Jones, Windows corporate vice president; Microsoft Research Managing Director Roger Needham; Will Poole, Windows Media vice president; Jeff Raikes, vice president--business productivity services; and Windows Division Senior Vice President Brian Valentine.

Microsoft also has lined up a number of third-party witnesses. Autodesk CTO Scott Borduin, Onyx Software CEO Brent Frei, Freedom Scientific VP Chris Hofstader, and Unisys executive Richard Ulmer, who will explain why a stripped-down version of Windows would hurt developers.

Other third-party witnesses include Donald Baker, a partner with Baker & Miller, here; University of Colorado professor John Bennett; Heather Davisson, an executive with Opus-i; University of Virginia professor Kenneth Elzinga; Avanade CEO Mitchell Hill; John Johnston, a partner with August Capital; MIT professor Stuart Madnick; University of Chicago professor Kevin Murphy; AMD CEO W.J. Sanders; Philip Schoonover, an executive vice president with Best Buy; Charter Communications CTO Steven Silva; and Gregg Sutherland, Qwest Communications senior vice president.

Weighing options
Kollar-Kotelly has yet to rule on a Microsoft motion to dismiss the litigating states' portion of the case. The company argued that allowing the states to continue after federal trustbusters settled would usurp the Justice Department's authority over setting national antitrust policy.

On Friday, in two legal briefs, 25 states joined their nine litigating counterparts to oppose Microsoft's motion. They did so not in support of the case's continuation but to protect their authority over antitrust matters, according to the filings.

At the same time, Kollar-Kotelly is deliberating over the fate of the Justice Department settlement, which she can approve or reject. But her role is largely limited to criteria set forth by the Nixon-era Tunney Act, which mandates antitrust settlements must be in the public interest and not be politically influenced.

Once the testimony is completed in the remedy proceeding, Kollar-Kotelly will have the arduous task of crafting a remedy that later could be appealed by either or both sides.

No matter what the outcome of either process--settlement or remedy hearing--Microsoft's legal troubles stemming from the antitrust case are only just beginning. In the last month, AOL Time Warner's Netscape subsidiary, Be Inc., and Sun have all filed private antitrust lawsuits against Microsoft. The Sun suit alone, which is larger than the Justice Department's case and an investigation under way by the European Union's Competition Commission, could go on for many years, experts said.